Rail car demand continues to increase

According to the latest N.A. Railroad Equipment and Deliveries Outlook published by FTR Associates, capacity on the railroads remains extremely tight -- facilitating the need for additional rail cars, as there is strong freight demand coupled with further declines in railroad productivity.

North American rail car loadings surged 5.2% in 2004, the strongest rate since 1994. Demand is being further driven by the inability of the rails to increase productivity levels as calculated train speeds declined further in 2004 with no expected improvement until at least 2006.

The number of rail cars in use relative to the total fleet is at its highest level since the merger problems back in 1997 and 1998. Rail car capacity in use will be at elevated levels over the next two years.

“We will see the capacity in use number coming down over the next two years, but it will still be well above its historical norm suggesting that there will be tremendous pressure on the system to add additional cars,” said Eric Starks, President of FTR Associates.

The demand in the market place would suggest the need for deliveries of 65,000 to 70,000 units over the next few years. However, physical constraints by the equipment manufacturers will limit this to 61,700 units in 2005 followed by 63,100 units in 2006.

On top of record levels of freight, the fleet of railcars continues to age, according to FTR. Nearly 50% of all railcars in North America are older than twenty years of age, which suggests that pressure will mount over the next decade increasing replacement demand substantially. As railcars start to approach 30-40 years of age, replacement of this equipment is imminent.

Already, capacity is constrained at the supplier level. While the average age is not likely to impact short term demand, it certainly will influence the longer term forecast. Around 2015, FTR estimates 300,000 railcars will need to be retired over the next 5-year period. This translates into an average 60,000 railcars needing to be replaced per year between 2015 and 2020.

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